Beeronomics: Going Extra Local - Cask Ale

Over at Beervana, Jeff has a really nice post on Ted Sobel, Oregon's Pied Piper of cask (or 'real') ale, trying to lead Oregon's craft beer lovers to a new frontier - but here the analogy ends for this frontier leads not to their doom but to a new and glorious part of Beervana.  Ted is the owner and brewer at Brewers Union Local 180 in far-off Oakridge, Oregon (pretty far even for the real Pied Piper to get followers to come) and he is the states only cask-only brewer.

Here is Jeff:

There are a lot of ways to sell beer in this state, but the easiest is to make them big and hoppy. It helps if you're conveniently located in East Portland--though Eugene seems like a pretty good location, too. A sure-fire business model includes a pub/taproom and capacity to distribute 22-ounce bottles and/or kegs to alehouses around the Northwest. Do that and your road is lined with rose petals.

Ted Sobel ... has not chosen the easy way. He makes small beers with low levels of hops. His pub is three hours from Portland, in Oakridge. He brews real ale, sold exclusively by firkin, and only really trusts one other pub to handle his beer. To reach the Portland market, he must load the casks into the back of his station wagon and drive them up himself. For his trouble, he earns less per firkin than he would if he sold the beer in his own pub. In the term of art, Ted has not yet figured out how to "monetize" his vision in the way other pubs have. His road is thorny, cold, and lonely.

For those Portlanders and Oregonians who are into fresh, natural and local, cask ale would seem to be a no-brainer. Cask is all of those things and nothing is more local and ephemeral than a locally brewed and prepared cask. In only a few days it will spoil after it is tapped, no artifical gases are injected into it - all carbonation is naturally occurring (and as I write this I am fearful of making a error that Ted will surely correct for such is the state of cask knowledge that even someone such as I, a huge cask enthusiast, only has rudimentary knowledge of the art).  The absence of injected carbon dioxide tends to reveal flavors that are hidden by the gas and, to my mind you get a fuller, richer experience of the ingredients and flavors that mingle on your tongue.  Which is also why mild beers are perfect for cask, flavors that CO2 washes out will remain on cask.  Mild beers are also perfect for an evening of socializing - quaffable, enjoyable and easy on the brain.

But because of the difficulty of preparing, serving and keeping cask ales, until the appreciation for the product causes a real demand shift it is hard to make them profitable.  Which is why I am here to tell you that if you missed the meet-the-brewer event at the Green Dragon last night, you have another rare chance to meet Ted and taste his beer served the way it is supposed to be served - from a fresh cask - tonight at Belmont Station.  The cask gets tapped at 3.  I shall be making a mad dash to meet Jeff there after my last meeting in Corvallis and hoping that y'all have to wait until later so there is some left for me.  [If you see me, say 'hi.']  It is only through repeated exposure that cask - just as craft beer itself - will catch on and create its own market.

The Hopopotamus™ Update: It has been racked into bottles and will be ready in a week or so, but the occasional zwickel has left me confident that it is, and I am sure all tasters will agree, The Best Beer Ever Brewed™.  In case you were wondering...

Also, my wee hop plant is not so wee anymore, and have been convinced by the beer savant to add about 6 more feet to my trellis support.  It has about 15 feet to grow up now.

Now all we need is some sunny weather and I can get to work perfecting my Northwest Best Bitter.

Soccernomics: World Cup - Part 1

Can hosting a World Cup - the world's most watched sporting event - be a good thing for a country's economy?  Most economists believe that investment in stadiums is a loosing proposition and it is easy to see why: the opportunity cost of hundreds of millions of dollars in infrastructure investment going to a large stadium that is used infrequently just seems preposterous.  Added to that is the fact that try as we might, we just can't find any evidence they the contribute in any significant way to growth.  As I have said here before, however, I think economists that assert confidently that this means the investments are losers are falling victim to the fallacy that lack of evidence for the positive is evidence for the negative.  I don't know if they are good or bad over their lifetimes, but I find it hard to believe they don't matter at all given how much our society loves sports.  Whether they matter enough to justify the cost is a different question.

But what about big giant sporting events like the World Cup or the Olympics?  These not only cost a lot in terms of stadia but also in other massive infrastructure investments.  It is hard not to think of all of the money Greece poured into the Athens Olympics when you look at their current fiscal crisis.  However, they do bring lots of exposure - but does 'exposure' really matter? It is hard to say overall, but I discovered two interesting little tidbits about such matters.

The first is that apparently events in developing countries bring bigger gains than in developed countries mostly through he fact that they force general transportation, communication and other infrastructure improvements that are strong determinants of growth - and otherwise tend to be underinvested in.

The second is that countries that stage such events tend to have a strong positive effect on trade.  But, it turns out, so do losing bidders for such events.  This suggests that there is a strong correlation between wanting to liberalize in trade and wanting to host such events - it makes sense that they would go hand in hand.

On a completely different note, I find it interesting that the sportswear maker Puma has gone heavily for the African teams, providing the uniforms for Algeria, Cameroon, Côte d'Ivoire and Ghana.  These are lower profile teams and are likely to be cheaper to sponsor, but it could be a masterstroke this year.  African teams are perennial under-achievers: super-telented but lacking in the strong team identity and discipline that is so crucial.  But being in Africa this year could change everything and I have a hunch it will.  In the past playing in your home country has proven to be a hugh boost.  And though South Africa are weak and unlikely to be able to leverage home country advantage too far, playing in Africa will still be a hugh motivation for other African teams.

There are some pretty great African teams out there and so following in the footsteps of my correct prediction that Spain would win the Euro 2008, I am going out on a limb and predicting that Côte d'Ivoire will wind the world cup - you heard it here first.  Allez Les Éléphants!

And just to get you in the mood for African football:

It is All About the Incentives...

Behold the tip jar at the Beanery in Corvallis:

Though this doesn't overcome the free rider problem for brewed coffee, it does suggest that your espresso's milk might be a bit tepid if you are a cheapskate....

Econ Humor - Australian Style

HT: Greg Mankiw.

Best bit (paraphrasing). Questioner: "And why is the US economy so much stronger than the European economies?" Respondent: "Because it is owned by China." Questioner: "Correct."

Portland Home Values: Case-Shiller March Numbers

Farmed out entirely to the Wall Street Journal's Real Time Economics Blog:

Home Prices, by Metro Area

Metro Area	March 2010	Change from February	Year-over-year change  ↓
Las Vegas	102.58	-0.8%	-12.0%
Detroit	67.66	-4.1%	-4.6%
Charlotte	114.74	-1.1%	-3.9%
Seattle	143.73	0.1%	-3.6%
Tampa	136.46	-0.1%	-3.5%
Portland	143.61	-0.1%	-2.8%
New York	169.42	-0.7%	-2.4%
Chicago	119.71	-2.3%	-2.3%
Miami	146.15	-0.9%	-1.7%
Atlanta	103.74	-1.8%	-1.3%
Phoenix	109.52	-0.5%	2.4%
Dallas	115.74	0.4%	3.0%
Boston	151.42	0.0%	3.8%
Denver	125.31	0.6%	4.1%
Washington	175.28	-0.7%	5.6%
Los Angeles	170.62	-0.7%	6.0%
Minneapolis	116.66	-2.7%	6.5%
Cleveland	103.32	1.8%	6.7%
San Diego	160.22	1.5%	10.8%
San Francisco	136.74	1.5%	16.2%

Portland is not a particularly bad market, nor is it particularly good and I don't expect this to change any time soon. I think, as I have said before, that we are like to go through all of 2010 without too much appreciation or depreciation.  The new home buyer tax credit will expire, but the summer season will pick up and long-term mortgage rates are still incredibly low (helped now, ironically, by the troubles in Europe as the Dollar becomes a safer bet than the Euro), however unemployment will continue to depress housing. Which all means it is about as good a time to buy as you are likely to see in your lifetime as long as you are in it for the long -term.

Economist's Notebook: Statistical Inference

Nate Silver has a fascinating blog entry on the problem that modern people are causing pollsters.  He uses this graph from the CDC which shows the population of cell phone-only adults in the US:

Pollsters don't like cell-phones apparently because they are more expensive to call (I don't know why) and there are more restrictions for automated calls to mobile phones. What this poses to pollsters is a problem of statistical inference: making generalizations about a population from a sample.

Here is silver:

Cellphone-only households are different from their landline-using counterparts. They tend to be younger, poorer, more urban, less white, and more Internet-savvy. All of these characteristics are correlated with political viewpoints and voting behavior.

The pollsters' usual defense mechanism against this is to weight their polls by demogrpahics [sic] -- something which they need to do anyway, since polls are subject to many forms of non-response bias (for instance, it's harder to get men on the phone then women). But this is potentilly an inadequate response for several reasons. First, some characteristics that correlate with both cellphone usage and political preferences may not correspond to those that are most commonly used to weight polls. It is somewhat rare, for instance, for pollsters to weight their polls by characteristics like urban/rural location or marital status, which are predictive of both cellphone usage and political beliefs. Being cellphone-dependent also appears to be significantly correlated with media consumption habits (in particular, getting more of one's news from the Internet and less from television), which also seems to be increasingly important in determining one's political views. And there are some characteristics that may be even more subtle. For instance, there are some hints in the CDC data (such as the higher prevalance of binge drinking) that cellphone-only adults are less "domestic" and more "bohemian". I suspect that, in young adults, this is correlated with more liberal political views.

Secondly, even where weighting occurs, one may encounter problems when upweighting from very small subsamples. It is now very difficult, for instance, to get young people on the phone when using a landline-only sample. About half of all adults from age 25-29, for instance, are cellphone-only, and two-thirds are either cellphone-only or cellphone-mostly. (The numbers are actually slightly better for adults aged 18-24, who are more likely to be living in a college dormatory, or still to be living at home, where a landline will usually be available.) Couple this with the fact that young people have grown up in a call-screening culture, and their response rates are often completely inadequate. Say that you're supposed to have 100 people aged 18-29 in a poll of 500 adults, but in fact you only get 30 because of problems with call-screening and cellphone usage. The margin of error on a sample of that size is 18 percent. And yet, you may essentially let each of these young people speak on behalf of two or three of their peers, to compensate for the ones you haven't gotten in contact with.

A new study from Pew, in fact, has found that these weighting schemes may have become inadequate. In their experiment, a weighted landline-only sample produced a generic ballot result of Republicans 47, Democrats 41, whereas a weighted landline-plus-cellphone sample had the generic ballot tied 44-44. That six-point net difference is statistically significant, and needless to say, could have huge implications for where the parties finish in November.

His suggested solutions include using non-traditional sample weights and larger sample sizes. The second one baffles me, if a sample is biased just making it larger doesn't help. Seems to me, the solution is to pay up and call cell phones. But it is interesting that what has worked for decades, calling land-lines, is now starting to fail thanks to new technology.

More Soccer

Too bad Ronaldinho is not going to South Africa - I think Nike would have like to have known that in advance.

Soccernomics: Peer Effects

It turns out that peers matter in lots of ways in economics: you academic performance is influenced by them, you decisions to engage in 'risky behaviors' is influenced by them and your happiness often depends on others' around you.  So what better way to increase your happiness from the World Cup than by watching the games in a public place?

In Portland there will be two opportunities.  The June 12th match between England and the US will be shown in Director Park on a big screen and the World Cup final on July 11 will be screened in Pioneer Courthouse Square.

Okay so this is not the Champs Elysees:

Or the Copacabana in Rio:

But it'll still be fun.

The Timbers will use the June 12th showing as the opportunity to unveil their new MLS crest as a bonus and will apparently be ready to sell you lots of schwag with the new logo.

I will root for the US as far as they take me, I will honor me roots and cheer for Eng-er-land as well, but my heart will be behind my adopted second country: Brasil:

Eco-nomics: Global Warming

The science is solid, the evidence is real and the culprit is human activities - so says the National Research Council:

The compelling case that climate change is occurring and is caused in large part by human activities is based on a strong, credible body of evidence, says Advancing the Science of Climate Change, one of the new reports. While noting that there is always more to learn and that the scientific process is never "closed," the report emphasizes that multiple lines of evidence support scientific understanding of climate change. The core phenomenon, scientific questions, and hypotheses have been examined thoroughly and have stood firm in the face of serious debate and careful evaluation of alternative explanations.

"Climate change is occurring, is caused largely by human activities, and poses significant risks for — and in many cases is already affecting — a broad range of human and natural systems," the report concludes. It calls for a new era of climate change science where an emphasis is placed on "fundamental, use-inspired" research, which not only improves understanding of the causes and consequences of climate change but also is useful to decision makers at the local, regional, national, and international levels acting to limit and adapt to climate change. Seven cross-cutting research themes are identified to support this more comprehensive and integrative scientific enterprise.

The report recommends that a single federal entity or program be given the authority and resources to coordinate a national, multidisciplinary research effort aimed at improving both understanding and responses to climate change. The U.S. Global Change Research Program, established in 1990, could fulfill this role, but it would need to form partnerships with action-oriented programs and address weaknesses that in the past have led to research gaps, particularly in the critical area of research that supports decisions about responding to climate change. Leaders of federal climate research should also redouble efforts to deploy a comprehensive climate observing system.

So what to do? A carbon tax is the solution most economists favor, at least in part because if the relative simplicity. Here is Ed Glaeser on the current bill:

This bill is a behemoth for three reasons. First, it tries to do far more than just charge for carbon emissions. The bill starts by providing “incentives for the growth of safe domestic nuclear and nuclear-related industries.” It supports carbon capture in coal plants, expands offshore drilling, establishes an Office of Consumer Advocacy and promotes “clean energy career development.” Standard economics suggests that many of these interventions would be unnecessary if we had the right tax on carbon emissions; if companies pay the full social costs of their actions, they have the right incentives to invest in greener technologies without any further help from Uncle Sam.

The second reason that the bill is so big is that it uses a complicated cap-and-trade system rather than a simple Pigouvian tax. In theory, a permit system can be identical to a tax. Selling permits to emit carbon at $50 a ton is equivalent to taxing carbon emissions at $50 a ton. But tradeable permits, typically and as promulgated in the American Power Act, differ from a tax for two reasons: the quantity of permits is relatively fixed, and many permits will be given away rather than sold.

Fixing the number of permits may actually be the right thing to do. As my colleague Martin Weitzman wrote almost 40 years ago, quantity controls are better than prices if we are more certain about the right quantity than we are about the right tax. In the case of global warming, we may arguably be more confident that the amount of carbon should stay relatively flat than we are about the per-ton damage from carbon emissions.

Giving away permits rather than selling them is often defended as a means of ensuring that global warming doesn’t become an excuse for higher taxes. A carbon tax could easily get out of hand if the public sector starts seeing it as a solution to America’s budgetary shortfalls. Freely distributing permits seems to be crucial in building support for the bill, but the cost in simplicity is significant.

International trade is a third reason that this bill is so complicated, because we are trying to use domestic legislation to handle a global externality. If America charges for the carbon emissions involved in making an industrial product but our trading partners do not, then American producers will be at a competitive disadvantage.

Oregon Unemployment in Historical Perspective

Not long ago the Oregon Office of Economic Analysis started a blog.  It is infrequent but still a great addition to the discussion of the Oregon economy.  The also have some great graphs generated from Oregon data and today they have another of the graphs that look at Oregon's present labor market troubles compared with those of the recent past.  The picture is grim but probably quite accurate.  No one can say for sure how quickly we will climb out of the current recession-created hole we are in, but there is no great hope it will be a quick process.

Anyway, check out the blog for a more in-depth discussion.

Another blog that should be on your radar is the one from the Research Division of the Oregon Employment Department (and I will update my blogroll to include both of these).

Oregon April Unemployment: 10.6%

The April unemployment figures are out for Oregon this morning and the news is better. Though the unemployment rate is unchanged at 10.6%, the state added 3,900 jobs.  The reason for the unemployment rate not dropping is the job seekers retuning to the labor force.

But there is some worrying news: manufacturing, bucking the national trend, actually lost 500 jobs. Also, given the big national job number from last week, 290,000 new jobs, I would have liked to see a better number from Oregon.  It might appear that Oregon is a laggard in the recovery, but I think it is far too soon to tell this yet and the robust growth in Asia should help us recover faster.  

St. Helens

Somewhere around 1983, my dad chartered a little plane to take us over and around St. Helens and view the devastation from above.  It was stunning.  From above all of the trees that had been knocked down and stripped bare looked like hundreds of thousands of toothpicks that had been dropped from above.  For a relatively young and impressionable kid, it was a lesson in the power of nature that has never left me.  Hard to believe that it has already been 30 years.

Picture of the Day

From the New York Times' Economix Blog.

It is a bit hard to read, even when blown up to full size so I'll describe it.  It shows real median weekly earnings (from the BLS) for college graduates (red), those with some college or an Associates degree (brown) high school graduates (dark blue) and those with less than a high school degree (light blue).  The point is that in relative terms a college degree is becoming ever more valuable.

Beeronomics: The Hopopotamus™ Lives!

I am very pleased with my new all-outdoor brewing set-up, and was so determined to brew outdoors that The Hopopotamus™was delayed by the extended wet and cold weather we have had over the last few weeks.  But last Friday the weather cleared, I wrapped up all the tasks I had to do early, and set to brewing.

After a trip to Steinbart's, where many hops were purchased, I swung by and picked up The Beerax for moral and spiritual guidance and then set up my al-fresco brewhouse on my patio.  My new propane burner was fantastic and in no time at all I was ready to mash.  So mash I did.  Here is a picture of the grain sack early on in the mash.

 

Then it was time for the powdered malt extract andhere the trouble began.  After stirring the malt extract a little I noticed my floating thermometer was trying to float horizontally. I figured at fist this was due to malt extract - pretty gooey stuff before it dissolves - sticking to it.  But when I pulled it out I discovered, to my horror, that it had shattered at the bottom leaving behind glass and weighting pellets of unknown provenance. [In the picture you can see the offending thermometer] The thermometer itself which rests inside the glass container, was intact (and thus no mercury contamination - if there is any in these things anymore), so there was a few moments when I pondered continuing on and straining out the debris.  After all, the little weighting pellets couldn't be lead could they?  No one would be the wiser, I thought, and what is a little shard of glass in a beer anyway but a fun amusement?  

Fortunately, seeing my moment of weakness, Jeff looked at me in the eye and said "I 'aint drinking your beer man..."  Of course he was right and so a mad dash to Steinbart's ensued - in rush hour, argh! - to procure more grain and malt extract.  And in this cautionary tale lies yet another reason homebrewing is not a money saver - this will end up being an expensive beer, economies of scale indeed.  

So after a refreshing jaunt through Portland traffic, back we arrived and re-started the entire process with a new thermometer.  Once the grain bill was fully infused the fun began.  I, being the Beer-Whisperer, had an unconventional sense that I should add the low alpha acid hops early, creating a base of gentle bitterness that would then be layered upon with pungent, high AA, hops later in the boil.  Jeff, however, started getting skittish about the result being under-hopped and was strangely unimpressed by my Beer-Whisperer's certainty that my instinct was True and Good.  

This unsettled me.  Jeff is, after all, the Beer-Savant (or the Rain Man of beer as I like to call him) and my conviction started to wane, so I capitulated.  [Later Jeff would say that he was merely posing the question and not making a suggestion - so now I call him the passive-aggressive Rain Man of beer] I thus threw in an ounce of the ultra-high AA Simcoe hops and switched the order of the moderate AA Cascades and the lower Crystals.  More Simcoe and Amarillo were added late and in the picture below you can see the wonderful, glorious oil-slick of hop resin as well as the remaining Amarillo waiting in the carboy as my dry-hops.  

Maybe Jeff was right, thought I, as the final product in the carboy whispered to me that it was good.  I have had a bit of a under-fermentation problem recently, so I pitched two packs of Wyeast's American Ale II yeast, which reputedly is the Anchor Ale yeast.  Never used it before but it, of course, whispered to me that it was the One.

And so The Hopopotamus™sits in my basement fermenting away getting ready to make its world premier in another few weeks.

Over at the Beeronomics blog (which is simply a collection of all my Beeronomics posts from this blog) A commentator noted that perhaps my assertion that The Hopopotamus™name was a registered trademark was suspect as Roots has already had a beer of that name.  I had not known of (or more likely not remembered) the Root's brew, but in any event Craig spelled it Hoppopotamus whereas I go for the more parsimonious use of the p.  Regardless the registered trademark symbol was entirely a joke, but lest the feds get whiff of The Hopopotaumus™- and surely they will what with all the hops - I have switched to the TM symbol.  So there.

And I did rip-off the name, but not from Craig Nicholls, rather I stole it from The Flight of the Conchords.  Enjoy:

Soccernomics: Grass?

The announcement that the Portland Timbers will take on English Premier League side Manchester City at Merlo Field at the University of Portland rather than at PGE Park makes me suspect that Man City would not agree to play on a turf field.   Merlo field holds less than 5,000 spectators meaning the opportunity cost of playing there is probably about 10,000 lost ticket sales.

One hopes that these economic realities will eventually cause the Timbers to try and facilitate a switch to grass, but it seems like it will take a good alternative for high school football to do so.

Beeronomics: Growing Your Own - the Hop Update

Well, I never claimed to have a green thumb...  My initial rhizome didn't seem to want to emerge from the earth and greet the sun, so I had to declare a failure to thrive and make an emergency dash to Portland Nursery to get a new Cascade hop plant (which apparently is the hop of choice as the pickings were slim among Cascades, but there were ample choices of very mature hops of different varieties).  Now, after taking quite a bit more care with the planting, giving it lots of fresh soil and compost, I am happy to report that my new Cascade hop is thriving albeit still a wee thing (picture above - now about a week old, so it has grown probably 2-3" since then).  My cherry tree also looks to be gearing up for a banner year so beers with home grown ingredients are in the offing.

One side benefit to having to dash off to Portland Nursery is that I pass right by Belmont Station - a misnomer now that it is on Stark, but no matter - and, well, when in the neighborhood one must stop in mustn't one?  Since spring was in the air and hops were on the mind, I picked up a selection of IPAs that are hard to find in my local stores:

Oakshire Watershed IPA - A lovely hop aroma, amber color and medium body. A bit aggressively bitter, but another of the excellent NW IPAs out there for us hop heads.

Hair of the Dog Blue Dot - As a seasonal, it is only around part of the year, so now is the time to track this über-classic down.  Every time I try this after a long absence I am absolutely floored by it.  It is aggressively hopped but has a wonderful creamy body that balances the bitter hops.  It is much lighter than the average NW IPA and I suspect that a dose of wheat gives it its creamy body.   The hops and malt do a dance on your tongue and the floral aroma sings to your nose - rhapsodic.

Rogue Brutal Bitter - My favorite Rogue beer which apparently is being renamed Rogue Brutal IPA.  It is really not a bitter in the british sense as it has more IPA characteristics, but it is not especially bitter so I have always thought that the name did it a disservice.  As I can find about 10 other Rogue beers locally but not this one, I suspect that I am right about the name scaring people off.  Of the four beers here, this surely is the one a non-hop head would be the most likely to love.  The Crystal hops are so clean and bright on the palate it amazes me that they are not used more (at least to my knowledge). I tried to clone this beer with a few twists and it came off pretty well and now Crystals are among my favorite hops to brew with.

Bear Republic Racer 5 - This was the true revelation.  I had not had it before and I have missed out.  It is bottle conditioned (like Bridgport's IPA) which allows the flavors to shine and oh what flavor!  It is aggressively hopped by not aggressively bitter, has a wonderful aroma, floral and citrusy, a lovely amber color and is lightly carbonated thanks to the bottle conditioning. It has vaulted into the top shelf of my favorite IPAs - which includes those listed here as well as Ninkasi, HotD, and Boundary Bay, among a few others.    

I highly recommend all four.

Tomorrow I shall update the latest news on the eagerly anticipated arrival of The Hopopotamus™

Leadership Portland

Giving a talk to the folks at Leadership Portland today at the Rose Garden.  It is kind of a broad sweeping talk that talks about the current economy, the prospects for growth and directions for policy.  No time to try and write a script, but here are the slides from my talk.

LP Presentation

The Economics of Charitable Giving

As the OPB latest fund-drive comes to a tortured end - 'just a little more time because we need just a little more money!' - it seems like a good moment to learn about what economists have learned about charitable giving.

[And by the way OPB, your appeal would be more effective to me if I could hear you clearly - what is it with reception in the Sellwood-Moreland area? - it sucks]

You can travel the country and pretty much every public radio station you'll hear sticks to the same pledge drive script - which makes sense, with so much experience, public radio must have figured out exactly what works and has fine-tuned it to a precise science.

Turns out that there are some things fundraisers have learned that are a bit contrary to what standard economic theory would predict.  Take matching gifts for example: people respond to them but it doesn't matter if they are one-for-one or more than that - they give the same extra amount either way.  Economic theory would predict that when you increase the marginal benefit of an action we should do more and that this effect should be monotonic - ever increasing.

Another interesting fact is that givers seem to be goal-orientated: Universities always start campaigns in 'quiet phases' and don't go public with them until they have made substantial progress toward that goal. Rightly so it turns out: people respond more when they think the goal is obtainable and realistic.  This does correspond to economic theory if it is the goal itself that created the marginal benefit of giving.

Public radio loves to say 'give whatever is right for you' but then proceeds to recommend some figures: dollar-a-day, $120, etc.  These figures actually influence giving more than one might think: the key it turns out is to give a person a figure that is a bit above average but not too much.  A study in Texas used a $300 figure to successfully get people to give more than the average ($75), but $600 was too much - people felt connected to the $300 ('it could possibly be me that could give that') but not $600 ('that is someone much wealthier than me').

It also turns out that we don't just give for altruistic reasons, we give because it makes us feel good about ourselves as well.  I like to know that I am helping out poor people in developing countries when I give to Oxfam, say, because I like to help others but I also like how that makes me feel about myself.  This is a bit self-serving, but not really a bad thing - I am giving after all.  Bill Harbaugh at the U of O found that when you create categories, e.g. 'sustaining member,' most people will give the minimum of the category ranges.  Why should this be if it is purely altruistic?  Because it is not - we like being a 'sustaining member' not just a 'member.'

Finally the most basic economic principle that governs this enterprise is the free rider principle that is part-and-parcel of public goods.  It is likely that OPB gets only about 10% of its listeners to give something because listeners know that if they don't give it is likely someone else will and then they can get the good for free. OPB does not want you to know the real figure because it may serve as a disincentive to giving: if you know that so many people are free-riding you may not want to facilitate that selfish behavior.  In fact it is pretty amazing that they can get even 10% to give given the pure public good nature of radio.  

Which reminds me - it is time for me to get my renewal form back to OPB. And thank goodness the pledge drive is over...

Economist's Notebook: The Value of Architecture and Historic Preservation

From the New York Times: The interior of the old Penn Station, whose destruction has motivated landmark preservationists to protect other historic sites. Photo by Berenice Abbott, 1935, and released by The New York Public Library. Photography Collection, Miriam and Ira D. Wallach Division of Art, Prints and Photographs.

Okay, so I know that I run the great risk of seeming like Ed Glaeser's lackey by constantly commenting on his popular writing, but I can't help it, he is my current favorite economist writing for the 'peeps' (as my son likes to say these days).  His focus in urban economics and agglomeration externalities matches my interests to a tee.  And his latest piece on historic preservation is another topic that I have wondered about a lot myself.  I am a big fan of the Portland Architecture blog, whose author, Brian Libby is a strident preservationist (his latest post is a perfect example).  I am of two minds.  There are times when I can't believe that such wonders as Penn Station (above) are gone forever gone forever and I truly believe in the power of architecture to elevate and inspire.  There are other times, however, when the economist in me thinks about opportunity cost and wonders why we hold on to things like the Memorial Coliseum when its useful life has passed (and when its value as a historic landmark is, in my mind, highly questionable - just because the internationalist style was a popular phase doesn't make it high art).

Glaeser notes the tension between historic preservation and affordability.  Unfortunately the two are often at odds.

While some older buildings are beautiful reminders of another age, too much protection freezes a city in amber. If a successful city doesn’t build, its prices will skyrocket and it can turn into an exclusive, elite enclave.

The great urbanist Jane Jacobs inspires many preservationists. One chapter in her 1961 masterpiece “The Death and Life of Great American Cities” was titled “The Need for Aged Buildings.” Jacobs saw no trade-off between economics and aesthetics. She thought that older buildings were a strategy for providing affordable space.

In her view, older buildings rent for less than new buildings and the city needs cheap buildings, hence the city needs old buildings. That logic leads right to preservation, but it’s a faulty syllogism. In a booming city, restricting urban change makes real estate more — not less — expensive.

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Jacobs is right that cities need diversity and innovation. Detroit in 1900 was a model of entrepreneurial activity, with an automotive experimenter seemingly on every street corner. Fifty years later, Detroit had become a highly efficient, but ultimately sterile, industrial monoculture.

Jacobs argues that cheap, old real estate is needed to accommodate new activities. She is underestimating both the construction industry’s ability to deliver cheap, new space in places (see Atlanta), and the venture capital industry’s ability to provide seed financing for new ideas (see Silicon Valley). Still, she is correct that when space is cheaper there are fewer barriers to innovation.

But will preserving old buildings lead to cheaper space?

Jacobs’s focus on the micro-neighborhood, which often leads her to profound insights, here leads her astray. She observes that older buildings are typically cheaper than their new easier-to-maintain counterparts, and that leads her to support old buildings.

Economics forces us to think systemwide. Its most basic principles tell us that when the supply of anything facing positive demand is restricted — be it mangoes or real estate — prices will rise. In a successful city, demand will be robust and some people will be willing to pay high prices for real estate. The only way to keep prices moderate is to supply enough space to satiate demand.

Excessive preservation of older buildings, in a booming metropolis, is a problem precisely because protecting old buildings does exactly the opposite of what Jacobs thought it would.

When historic preservation stops higher-density development, it doesn’t maintain affordability; it creates scarcity. In Jacobs’s day, Greenwich Village townhouses were affordable. Today, after more than 40 years of historic preservation, thanks to the Greenwich Village Historic District that she supported, those homes can cost more than $10 million.

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The inevitable result of the rising prices that come from restricted supply is that districts have become increasingly exclusive. In 2000, the average household in a historic district was 74 percent richer and 20 percent more likely to be white than households elsewhere in Manhattan south of 96th street.

Preserving beautiful, important buildings surely has great value, but Jacobs was wrong to suggest that there is anything like a free lunch. When preservation restricts new supply, the city becomes more expensive and less open to new people and new activities. The right level of preservation must balance the desire for historic beauty with the desire for affordability and inclusiveness.

I think even ardent preservationists like Brian Libby would not argue that a balance has to be struck, but it is difficult to know where that balance lies. To me the Memorial Coliseum is a no-brainer: it is a relic of a different time and have outlived its usefulness and it is exceedingly difficult to find a real purpose for the builiding as it stands. The land is very useful for other purposes potentially, it occupies a beautiful rise on the river with a view of downtown and is extremely well connected to mass transit.  To those attached to its aesthetic, it should be preserved despite its uselessness.  It is this attitude where I think I draw the line - there are many buildings that can be re-purposed or simply refurbished and can remain quite useful and then it is worth thinking about the opportunity cost of doing so versus the cost of replacing it.  And yes, this includes the environmental impact as well which is another conundrum, newer is more efficient but it often means more initial resources.  But my attitude is also due to my own opinion about the value of the architecture itself.  I am willing to admit that this may be a minority opinion, but in this case I think the very vocal group that fought to save it are the distinct minority.

But I also think the idea that preservation is inherently elitist is also a bit to simplistic.  Do only the elite benefit from beauty in the built environment?  I don't think anyone of any background can wander the streets of Paris and not feel some movement of the spirit upward.  There are no easy answers to the value of this feeling to society, so I think it is best to tread lightly when we discard beautiful relics of the past.

Should the Fed be Subject to Audit?

No, says Fred Thompson:

Keep the GAO away from the Fed

Socialist Sen. Bernie Sanders' and House libertarian Republican Ron Paul’s proposal to audit the Federal Reserve looks like it is moving toward enactment. It has gained the backing of Senate Majority Leader Harry Reid, Banking Committee chair Chris Dodd, and the White House and has been attached to the Wall Street reform bill. The proposal amends a 1978 law that prohibits the General Accountability Office (GAO, the audit, evaluation, and investigative arm of the U.S. Congress) from looking at deliberations and actions on monetary policy matters by the Federal Reserve.

This proposal:

• Requires a one-time GAO audit of the Federal Reserve’s loans and other financial assistance provided between December 1, 2007 and date of enactment, to assess: (1) operational integrity, accounting, financial reporting, and internal controls of the credit facility; (2) the effectiveness of the collateral policies established for the facility in mitigating risk to the relevant Federal reserve bank and taxpayers; (3) whether the credit facility inappropriately favors one or more specific participants over other institutions eligible to utilize the facility; (4) the policies governing the use, selection, or payment of third-party contractors by or for any credit facility; and (5) whether there were conflicts of interest with respect to the manner in which such facilities was established or operated;

• Requires a GAO audit of the governance of the Federal reserve bank system, including how bank directors are appointed; and

• Requires the Federal Reserve to publish information on its website on all loans and financial assistance provided between December 2007 and date of enactment under a number of Fed facilities.  The information would be required to provide the identify of those receiving assistance, the type of assistance provided, the value of assistance, the date of assistance, the terms of repayments required from the assistance recipient, and the rationale for providing the assistance.  Such information would need to be provided by December 1, 2010.

• Requires the GAO “to investigate what appear to be enormously disturbing conflicts of interest affecting Federal Reserve loans to failed financial institutions.”

In addition to raising concerns about conflict of interest on the part of the Federal Reserve, advocates of this proposal make the following factual claims:

“In the last two years, the Federal Reserve Board has lent several trillion dollars to banks and other private companies, financial and non-financial institutions. This exceeds the annual budget of the United States.”

“It has guaranteed trillions of dollars of liabilities and also made hundreds of billions of dollars available to foreign central banks through currency swap arrangements.”

“Neither the public nor members of Congress have any information about who benefited from these loans, guarantees, and swap arrangements.”

These claims are all true, especially the last. Unlike US government spending, which is governed by an appropriations process that is primarily concerned with who gets money and where it is spent and an accounting system designed to make sure that Congressional preferences have been satisfied, the Fed is a bank, governed by FASB rules, so its quarterly reports show its assets (primarily its loans) and its liabilities in considerable detail (things most government agencies cannot tell you), but not arrayed by client (although that info is obviously in its chart of accounts), income and expenses (things that most government agencies do not measure, but which are a lot more important than who, “got the money,” except maybe to a politician who is concerned about passing out favors), and a detailed flow of funds statement (something no federal government agency can provide). These general-purpose financial statements are independently audited and verified by the US Treasury.

The Federal Reserve has the information Congress wants, but does not want to make it public because, “who benefits,” is precisely the question that politicization of the Federal Reserve would entail.

Proponents  of GAO audits of the Federal Reserve make several additional claims that are not entirely true:

“There is no information available on the specific terms of the loans – the interest rate charged, the collateral posted, and whether or not they were repaid.”

These are almost all open market operations (not informal guarantees), so the terms are publicly available (you can bid against the Fed if you want).

“There is no information available on how it was decided who would qualify for the Fed’s help and who would be denied assistance.”

The Fed has announced its policies. I presume it complies with them; I don't really know. Its general-purpose financial statements will show the results of those policies and, to my way of thinking, that is what matters most. Indeed, it would be lovely if most of the agencies of the Federal government were equally transparent and could on occasion tell us what they have actually accomplished.

In other words, I am not a fan of this proposal. Normally, however, I wouldn’t have paid it much attention. But right now I am particularly sensitive to congressional use of the GAO to enforce fairness and to police conflicts of interest. For the past year, my colleague, Steve Maser, several students, and I have been studying the federal bid-protest mechanism, which gives any person with a pecuniary interest in the outcome of a source-selection standing to protest government’s choice of a supplier and often the power to delay execution of contractual relationships. The primary venue for bid protests is the GAO, although protests may also be made to the Court of Federal Claims and the district courts. We present our findings at the 7th Annual Acquisition Research Symposium this week in Monterey, CA.

Our main aim in studying bid protests is to identify changes that might make them more effective or mitigate the burdens they impose upon government’s suppliers, public officials charged with executing government contracts, and, ultimately, taxpayers. However, one significant finding that emerged as a by-product of this effort is that the GAO appears to be highly responsive to congressional constituency interests; its decisions appear to be biased in favor of domestic producers and a fortiori the constituents of pertinent congressional leaders in a way that the decisions of the courts are not.

Why did Congress designate the GAO, a congressionally affiliated agency, to execute the bid-protest process? The standard answer is that Congress did not trust the executive branch or even the courts to avoid conflicts of interest. A better answer might be that they didn’t trust them to attend to the right interests. One should be skeptical of congressional claims about the pursuit of broad public interests, especially where distributional issues are involved. Indeed, assigning the GAO to protect us against parochial political interests looks a lot like asking the fox to guard the hen house.

If Congress uses the GAO to influence government source selection decisions, why would that not also be the case with respect to the Federal Reserve’s loans and guarantees? Requiring the Fed to identify those receiving (and not receiving) support from the Federal Reserve, the type of support provided, its value, date, terms of repayments, and the Fed’s rationale for providing assistance seems to invite the same type of congressional intervention one observes with respect to source selections. That might not be bad, but it certainly wouldn’t be apolitical.

Rumbling...

Er...this wee little roller across the street is causing considerable shaking of the ancient building I occupy.  Is that normal?  Is it ridiculously distracting.  It does not seem like this little thing should be able to shake my building so much.  When the big Cascadia subduction earthquake happens, I hope I am nowhere near my building.  The construction across the street is for the Hallie Ford Center.

And though I know that funding for such projects come from entirely separate pots, it is hard not to feel a tinge of aggravation when I have to sign my furlough form while watching this out my window as well as daily viewing of the two other major construction projects that are currently underway on campus: the Linus Pauling Center and the Living Learning Center. [That's a lot of 'centers' isn't it? - Must be the currently en-vogue moniker]  I am happy when any investment happens in public higher education in Oregon, but it seems to me that it is the faculty that are the key component in the education production function.  Just sayin'.

US Unemployment: Even Better News in April

Forget the fact that the unemployment rate increased to 9.9%, the real news is the pretty stunning 290,000 news jobs number.  This is a sure sign that the recovery is gaining strong momentum and that momentum is finally hitting the jobs picture.  The unemployment rate increase is due to the many discouraged workers who have decided it is worth looking for work again.  The is no two ways about it, this is great economic news...finally.

Now that I have said that, it is going to take many many strong months to get us back to where we started before the recession hit so we still have a long, long way to go.

Now let's hope that the national picture will translate to Oregon when we get our own numbers in a couple of weeks.

Oregon Economic Puzzles: Unemployment

There are many, I'll talk about a few more in the coming weeks but here is one:

Oregon's unemployment routinely exceeds the national average.

But the unemployment insurance 'exhaustion rate' - the percentage of folks who get UI that remain on it for the full 26 weeks - is routinely lower than the US average (except during recessions when we creep up to the average).

One theory is that we are are of work more frequently but for shorter spells.  Other theories? Explanations?  I await your expertise...

Sigh

Saying it is sure to lose, Oregon quits contest for federal school innovation money

By Betsy Hammond, The Oregonian

Oregon dropped out of competition for a federal Race to the Top school innovation grant Tuesday because the state is too far behind the rest of the pack to have a shot at winning, Oregon Gov. Ted Kulongoski said Tuesday.

Oregon needs to go back to the drawing board on basics such as how to turn around chronically low-performing schools and how to include student achievement growth when evaluating teachers and principals, he said.

What's more, Kulongoski said, Oregon's nearly 200 district school district superintendents and teachers unions aren't interested in gunning for the federal grant, which could have brought $175 million to Oregon but would have required big changes, including more state say over schools.

Nearly 7 1/2 years into his eight years as the state's top official, the governor now says he will convene a group of education advocates and other interested leaders to craft a package of school reform policies for the 2011 Legislature to act on.

"Simply put, Oregon needs to build a stronger foundation for K-12 reform," he wrote in a letter to U.S. Education Secretary Arne Duncan to announce that Oregon has quit the federal contest.

Oregon was one of 40 states that applied in the first round of competition for a share of $4 billion in federal funding. States had to show they have already improved student achievement and offer specific plans to fix low-achieving schools, raise academic standards, use data to improve instruction, and strengthen teacher evaluation.

Oregon's proposal, written by more than 100 educators and school advocates after months of work, was graded seventh worst. The state was judged to have some strong areas, but the application was deemed vague and the state's progress to date too tepid. The state was dinged for having too little authority over low-performing schools, and raters weren't convinced that student growth would be used to help evaluate and reward teachers.

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Becca Uherbelau, spokeswoman for the state teachers union, the Oregon Education Association, said dropping out was smart because Race to the Top officials wanted a cookie-cutter reform plan that didn't fit Oregon.

But she said the collaboration among public school leaders, universities, state officials and others to design the state's application was a healthy development that will continue.

"Oregon is in a good place to move forward and improve achievement for all students because of that collaborative partnership and coming together," she said. "We remain committed to working together to develop sound education policy," which should revolve primarily around better funding for schools."

Sue Levin, executive director of Stand for Children, a school advocacy group made up mainly of parents, said Oregon's decision not to apply the decision was a "sad" acknowledgment of how little the state has done to improve education.

"Oregonians are still in denial about the troubles of our educational system," Levin said. "In other states, either the governor or the state superintendent of public instruction or legislative leaders are serious, committed champions for education reform who have decided that is going to be their issue and they are going to tackle it. That hasn't been the case in Oregon since the 1990s. Absent that ... you can't just whip it up in three months.

"Hopefully this is a call to action for Oregon parents," Levin said. "I think there are folks around this state who are ready to have the difficult conversations, and they are going to be difficult conversations, about how we are going to educate all our children."

I don't think they want cookie cutter reforms but want evidence-based policy: so they want states to collect and analyze data, create real performance measures and have in place incentive mechanisms to encourage good teachers, schools and districts. Not all of this is easy, nor is the evaluation mechanism obvious and so on, but to give up is unforgivable.